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Accounts Payable (A/P)
What is Accounts Payable (A/P)?
Accounts Payable (A/P) in the context of the construction industry refers to the amount of money a company owes to its suppliers or vendors for goods and services received but not yet paid for. These could range from raw materials bought for construction, to equipment rental fees, to labor costs for contractors. Essentially, they are debts that a construction company needs to clear within a specified timeline. Managing A/P effectively is crucial in the construction industry to maintain positive relationships with suppliers and vendors, ensure a steady supply of materials and services, and promoting healthy cash flow. Regular reviews of the A/P process can help avoid potential financial hiccups and keep the construction projects running smoothly.
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Other construction terms
What is Certified Payroll?
Certified Payroll is a specific type of payroll process required for any contractor or subcontractor working on federally funded or assisted construction projects under the Davis-Bacon Act. It is a federal compliance requirement to ensure employees are paid prevailing local wage rates and benefits. Certified Payroll records include the worker's name, their classification, hourly rates of wages paid, daily and weekly hours worked, deductions made, and actual wage paid. It provides transparency for regulators, ensuring fair wages for work conducted. This mandatory weekly submission acts as an assertive step in suppressing wage theft in the construction industry.
What is Escrow?
Escrow is a crucial term within the construction industry, acting as a neutral third-party arrangement to temper the financial transactions involved in major construction projects. Essentially, it equates to a contractual agreement where a separate entity, usually a bank or other financial institution, holds the funds or assets on behalf of the parties involved until all terms and conditions of the contract are met. More specifically, in construction, an escrow account can safeguard the funds allocated for a project, assuring the contractor that they will get paid as long as they fulfill the agreed-upon work, while simultaneously reassuring the project owner that work will be completed as specified before funds are released. The escrow system is built on trust and transparency and is essential for mitigating financial risks and discrepancies in agreements in the construction sector.
What is Overhead?
Overhead, in the context of the construction industry, refers to the general, ongoing expenses associated with managing a construction company or project that cannot be directly linked to individual construction jobs or projects. These expenses can include administrative costs such as office rentals, utility costs, support staff salaries, and costs associated with legal compliance, insurance, and marketing. Overhead also includes costs associated with maintaining and repairing equipment, employee training, travel expenses, and team benefits. These costs are necessary for the business operation but do not contribute directly to a specific project’s profit. A proper understanding and efficient management of overhead costs are essential to maintaining business profitability and competitiveness.
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